The folks who run California did not take this wisdom to heart. They assumed that the booming market of the early 2000s would always be booming; they gave big hikes in pension benefits to public workers with promises that they wouldn't cost one thin dime; and they quit contributing to pension funds entirely for a while, assuming that things would always be rosy.

This will require a new, entirely more sober, set of assumptions — and billions more each year from local governments. Suffice to say that your cities and school districts will soon be paying some 35 percent to 50 percent more, each year, into pension funds, and will continue paying that extra money for decades to come.

And the more agencies must pay for pensions, the less they'll have to spend on things like libraries, roads, parks and other stuff for Joe Citizen.

HOW DEEP IS THE HOLE?

Interesting timing: Last year, the city of Fullerton hired Public Pension Enemy No. 1 on a $25,000 contract to give it the lowdown on just how deep a pit it had really dug (as official estimates from CalPERS, many felt, were just too rosy).

Enter Joe Nation of Stanford University's Institute for Economic Policy Review – the guy who has been sticking his studious finger in the eye of California's public pension systems for some time, simply by calculating how deep the holes would be if annual investment returns are lower than what CalPERS officially assumes. Last week, Nation compared Fullerton's mess with the mess in six other big Orange County cities – Anaheim, Santa Ana, Costa Mesa, Newport Beach and Orange.

The news wasn't good for anyone.

Under a best-case scenario – with CalPERS investments earning 7.75 percent, which even CalPERS doesn't expect to earn anymore – all of the cities had less than 80 percent of the money they need to pay what they currently owe. That "percent funded" ratio dove into the 65 percent range for Costa Mesa and Newport Beach.

Important point: If CalPERS were a private pension system, intervention would be in full swing. Private systems are labeled "at risk" and face sanctions when they fall below 80 percent funded. If private systems dive below 60 percent funded, they must freeze benefits, regardless of collective bargaining agreements, Nation said.

Einstein said that compound interest is the most powerful force in the universe, Nation quipped. Then Nation did what he is famous for — calculated the hole using what he, Warren Buffett and some more circumspect economists consider a more realistic assumption for investment returns: 6 percent.

Suddenly, when that is done, warning bells and red flags fly. Each and every city falls below that 60-percent-funded threshold which would freeze benefits in the private sector.

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